No, I will not sign your non-disclosure agreement.
Entrepreneurs are often surprised when investors refuse to sign non-disclosure agreements (NDAs) or confidentiality agreement when offered an opportunity to read the entrepreneurs’ new business plans. After all, every new startup features secret ideas, partnerships, intellectual property and/or technology.
Why won’t investors sign NDAs? Investors are pitched for funding by as many as 5,000 startup companies per year. Most NDAs have a 2-5 year term, so by signing NDAs, an active investor would be attempting to operate under the yoke of as many as 10,000 NDAs at any point in time. Just tracking them would be a nightmare. So, long ago, investors simply said “no.” If you want to pitch to them, understand that they will not be signing an NDA.
What is an entrepreneur to do? Here are a few suggestions:
- Do a bit of due diligence on all potential investors to gauge their integrity. If investors are active in your community, it is quite unlikely they will have interest in stealing technology. One whiff of that around town and their future opportunity for investments will be toast.
- Learn to write all forms of your business plan without your “secret sauce.” Investors don’t need to know the chemistry in your patent to size up the investment opportunity. Tell investors how your unique formula will delight customers! And, they don’t need to know the name of the big company who is evaluating your product under a confidentiality agreement. Just tell them a large public company is doing so.
- Talk to your advisors about what really is proprietary information. Customer (or potential customer) lists are surely not confidential. Business models are rarely proprietary. Be realistic about what is and is not confidential to your company and find a way around disclosing truly confidential information in your business plans. Remember: The purpose of all business plans is to attract investors. None will invest until they have, in fact, completed exhaustive due diligence after reading your plan.
- If, during due diligence, the investor asks for more information which you consider proprietary, you can ask their willingness to sign a narrow NDA covering only that aspect of your business. Many will do so, but some will not. You will then need to decide if you trust those who will not enough to share your truly proprietary information.
Issues of disclosure of proprietary information to potential investors are problematic for entrepreneurs. It is important for entrepreneurs to understand the realities of the marketplace (investors will not sign general NDAs) and work with advisors to write cogent business plans that entice investors to take a close look at the company. Full disclosure issues, if any, can usually be resolved just before closing the deal.
All opinions expressed are those of the author, and do not necessarily represent those of Gust.
Written by Bill Payne
You might also be interested in
So you’ve developed a game-changing product, formed a business with a killer team, quit your job, and are rolling the product out to market. Your business is the next unicorn, and all is good in the world. Fantastic. Now only one thing is inhibiting your company’s growth: you have no money.
For many founders of high-growth startups, bootstrapping has limits.
With startup growth up 61% since 2014 and more investment programs emerging, it can be overwhelming for founders to know just where to jump in. As the most startup-friendly accelerator on the planet, MassChallenge has helped 835 startup companies around the world, who have raised over $1.1 billion in funding and created over 6,500 jobs. We have seen startups at
Kathryn Schifferle, Founder and CEO of Work Truck Solutions, turned being a woman in work trucks into an oversubscribed $2.1 million round.
We sat down with Kathryn as she shared what her fundraising journey was like, the startup lessons she learned, and her advice to fellow founders, especially women. Here is what she had to say:
Update 2017: To help you understand how your startup will look to investors according to this methodology, we’ve created a fundraising feedback tool that will give you investor-level insight into your startup’s performance. In just about 15 minutes, it will tell you how much money your startup is likely to raise, where you can find that capital, and what to
How to Make Your Gust Account Stand Out to Investors
Before you read any further, I want you to know that I’ve personally used Gust to raise money for my first tech startup. I know a lot of other entrepreneurs who use or have used Gust to seek funds, but their profiles don’t always get attention from investors. Below are